Approximate after-tax cost of debt for new issue of bonds

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Reference no: EM131918445

1. The coupon rate on an issue of debt is 12%. The yield to maturity on this issue is 14%. The corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new issue of bonds?

A. 4.34%

B. 3.72%

C. 9.66%

D. 8.28%

Which is true about debt financing and the weighted average cost of capital?

I. Debt is often a cheaper source of financing than equity

II. As the level of debt increases beyond the optimum capital structure, the cost of capital can be expected to increase

III. No debt in the firm's capital structure will usually minimize the firm's weighted-average cost of capital

A. I and II only

B. I and III only

C. II and III only

D. I, II, and III

Reference no: EM131918445

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